Productive entrepreneurship and the effectiveness of insolvency legislation: a cross-country study

This paper studies the association between the effectiveness of insolvency regulations and entrepreneurship using multilevel modeling of about 300,000 individuals in 27 countries over the 2005–2010 period. We investigate the relationship between three different measures of “resolving insolvency” (time, cost, and recovery rate) from the World Bank and four different measures of entrepreneurship from the Global Entrepreneurship Monitor, controlling for relevant individual- and country-level facets. We find that opportunity-driven and innovation-oriented entrepreneurs are more severely affected by onerous insolvency regulations than necessity-motivated entrepreneurs. However, entrepreneurs envisioning rapid employment growth are not affected by onerous insolvency regulations. We discuss contributions to comparative entrepreneurship research and public policy.